How Does Owner Financing Work

Owner financing works when the owner decides to sell his property and finance a portion or all the sale of his property. It is usually referred to as "owner will carry". There are important tips to consider in entering this venture as it is risky and there are possibilities of defaulting of contract by the buyer along the process.

Here are some information to give you an insight of how owner financing works.

In its simplest term, owner financing works when the owner of the property decides to act like a bank and lend a portion or all of the needed money by the purchaser. It can be a very useful alternative for buyer's who want to purchase a property but do not have credits and assets to obtain a bank loan. In these situations owner financing can be helpful. Here are some important steps to follow in arranging for owner financing.

Starting with the Basics

First, there should be an agreement between the two parties, the owner of the property and the buyer. Contract and written documents should be amenable for both parties and legally processed. This would protect their rights and ensure a non fraudulent deal. As much as possible the contracts should be seen by trusted attorneys. The contract should clearly define the length of time that the owner will carry the loan, the amount of the property and the terms of paying. The owner may allow the buyer to pay monthly in a set of time, for example 5 years. After the given period of time, the buyer can pay fully and finally be the owner of the property.

Secure legality

In some cases the previous owner may finance the entirety of the purchase until it is fully paid. The major advantage for the previous owner is that he will receive interest as agreed upon. After agreeing with the term, the document or the contract should be seen and witnessed by a Notary public at the local courthouse. This procedure makes the transaction legal and secures the interest of both parties. Until the full purchase of the property the previous owner is responsible to pay for the tax and keep the home.

What to Keep in Mind

It is important that the two parties fully understands the contract and the terms of payment. Remember that once the contract is signed it can never be changed if you had a change of mind. Make sure that the rate is comparable to the one offered by the bank if you are a buyer. You may check the rates of the bank and request a closer interest. In the part of the seller, they may increase the price because of the assumed risk when the buyer tries to default from the contract. In order to prevent these instances you should build a good rapport with the client and make them feel that their interest is utmost important.


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